Every individual has different financial objectives and has a unique investment plan accordingly. Some want a particular amount of corpus at the time of retirement and other financial objectives are buying a house, child’s education, and many more things to do in life.
There is also a set of individuals who want their retirement planning in a certain way. Systematic withdrawal plan is an investment plan for the individual who requires a particular amount of money in a regular interval after their retirement.
What are systematic investment plans?
It is a mutual fund scheme in which you can invest to get withdrawals systematically. At a predetermined date, your fund manager will sell your mutual fund units and transfer the fund in your bank account. Also, you can choose to withdraw only gain on the capital invested, and keep your original investment safe. These regular intervals could be monthly, quarterly, half-yearly, or yearly.
Suppose you have invested in a mutual fund scheme ₹2 lakhs with an NAV of Rs10, which means you have 20,000 units of mutual fund in your account. Now, if you have planned to receive ₹5,000 per month from such an investment, your fund manager will sell 500 units of the mutual fund at a NAV of ₹10 each, and transfer the proceeds to your account.
The remaining 19,500 units of your mutual fund will stay invested till next month, and the same process will be followed in succeeding months. However, it is the case when you choose to receive a particular amount of money every month. If You have chosen to withdraw only gains on your invested money, the scenario would not be the same.
Suppose if you have invested in a mutual fund scheme ₹10,000 and planned to withdraw only the gains on your investment and keep your capital invested in the scheme. Now, at the first month, the market has given a return of ₹1,500 gain from your well diversified portfolio, you will receive ₹1,500 in your account at the predetermined date. In such a case, risk appetite has a significant influence on your withdrawal amount.
How to use the SWP scheme effectively?
Creates passive income
SWP investment can act as a source of passive income which is necessary in today’s rising cost of living. It could be a perfect example of making your money work for you. You do not have to actively participate in the course of investing business, you can totally focus on your regular income.
Your own pension plan
Earlier only individuals who are into government jobs can get a pension scheme, but now, you have an opportunity to create your own pension plan without looking forward to getting a government job. Your pension will totally depend on your investment corpus and risk appetite that you opt for your money.
Helps in market correction
During the time of market correction, the market tends to react panicky. Following the same, there are high chances when you, as an investor, might sell your units due to panic in the market to secure your capital, which might cost you heavily. SWP helps you in making bad decisions during such times.
SWP could possibly be a great tool to secure your future financially. Always remember such a mutual fund scheme before making your investment plan.
Anushka Trivedi is a freelance financial content writer. She can be reached at anushkatrivedi.com